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1. IS-MP-AD-IA model. In December 2017, the U.S. President and Congress passed a substantial decrease in taxes. Assume that the U.S. economy starts out at potential output at the end of 2017 a) What is the effect of the tax cut on the IS and MP curves in the short run? b) According to the IS-MP model, what would happen to output and the real interest rate in c) What would happen to the AD and IA curves in the short run? Draw a diagram to help d) According to the IS-MP-AD-IA model, what should happen to output and inflation over e) If the tax cuts are permanent, what would be the long-run effect of the tax cut in the AD- f) What would be the long-run effect of the shock on output, inflation, and the real interest the short run? Draw a diagram to help explain your answer explain your answer. What happens to output and inflation in the short run? time? Draw a diagram to help explain your answer IA and IS-MP diagrams? Draw those diagrams to explain your answer rate? What would be the long-run effect on consumption, investment, and government purchases? Briefly explain why

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